2024 is coming to an end quickly, and Social Security is making several important updates for 2025. Many of these changes are related to inflation, affecting both current retirees and those who are planning to start collecting their benefits soon.
Whether you are already receiving Social Security or getting ready to, understanding these changes is crucial to making informed decisions about your future.
Here are five key Social Security updates you should know about for 2025.
1. The 2025 Social Security COLA (Cost-of-Living Adjustment)
One of the most important changes coming in 2025 is the 2.5% cost-of-living adjustment (COLA) to Social Security benefits. This increase is designed to help benefits keep up with inflation and rising living costs.
Starting in January 2025, Social Security recipients will see their monthly benefits increase by 2.5%. The average monthly benefit for a retired worker, as of the latest data from October 2024, was $1,925.46. With the COLA increase, the average monthly benefit will rise to about $1,974.
This adjustment will help many retirees manage rising costs, particularly for things like healthcare, food, and housing. If you’re already receiving Social Security, this increase will directly impact your monthly payment starting in January.
2. Changes to the Social Security Benefit Formula
The Social Security benefit formula itself is staying the same in 2025, but there is a change to what are called the “bend points.”
For those who are new to Social Security in 2025, these bend points will affect how benefits are calculated based on a worker’s 35 highest-earning years. Here’s a quick overview of the new bend points:
- 90% of the first $1,226 of the average monthly earnings
- 32% of the amount between $1,226 and $7,391
- 15% of any amount above $7,391
These percentages remain the same each year, but the bend points (the income levels they apply to) are adjusted annually based on inflation. This change means that higher earners will see different impacts in how their benefits are calculated.
3. Maximum Possible Social Security Benefit
The maximum possible Social Security benefit is also increasing for 2025. For someone retiring at their full Social Security retirement age in 2025, the maximum monthly benefit will be $4,018.
However, if you decide to retire earlier, at age 62, the maximum benefit will be $2,831. On the other hand, if you delay retirement and wait until age 70, you could receive a maximum monthly benefit of $5,108.
The key takeaway here is that the earlier you start collecting Social Security, the lower your monthly benefits will be. Conversely, delaying your retirement can increase your monthly payments, providing you with more money in the long run.
4. Contribution and Benefit Base for 2025
If you’re still working, there is a change in the Social Security contribution and benefit base that you need to be aware of.
The contribution base is the maximum amount of income that is subject to the 6.2% Social Security tax. For 2025, this base is rising to $176,100, up from $168,600 in 2024.
This increase means that if you earn more than $176,100 in 2025, you will not pay Social Security taxes on any income above this amount.
Additionally, this figure is important for calculating benefits, as only earnings up to this limit count towards your Social Security benefits.
This change is important for higher earners who may not be aware of the cap on taxable income. It can also affect those nearing retirement, as it may impact how much you’ll ultimately receive in Social Security benefits.
5. Changes to Social Security Taxes for High Earners
For those with higher earnings, it’s worth noting that Social Security taxes will only apply to income up to the new limit of $176,100.
If you earn more than this amount, you won’t have to pay Social Security taxes on your excess earnings.
However, this doesn’t affect how your benefits are calculated, as your highest-earning 35 years will still be used to determine your Social Security benefits.
High earners may also be subject to additional taxes depending on their income levels, including the Additional Medicare Tax. Be sure to review your earnings and tax obligations as you prepare for retirement to ensure you’re fully informed.
Conclusion
These changes to Social Security in 2025 are crucial for retirees and future beneficiaries alike. Whether you’re already collecting Social Security benefits, about to start, or still working, it’s important to understand how these updates may impact your monthly payments and tax obligations.
Make sure you’re ready for these changes and plan ahead so you can make the most out of your Social Security benefits.
Keep an eye on updates from the Social Security Administration and other trusted sources as we approach 2025, and if you have any questions, consider speaking with a financial advisor to help guide you through the process.
In the end, these updates will help Social Security keep up with inflation and ensure that retirees can continue to rely on their benefits during their retirement years. Be proactive and stay informed!
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